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Caesars Sells Stake, Stripping Guarantee from Much of Its Debt

The casino company's sale of a minority interest sets the stage for a wider restructuring.

Caesars Entertainment Corp. is selling a minority interest in its largest unit, a step that removes guarantees by the casino company on much of its $23 billion of debt and sets the stage for a wider restructuring.

The Las Vegas-based company is selling a 5 percent stake in Caesars Entertainment Operating Co. to undisclosed investors, according to a statement yesterday. Caesars has agreed to pursue a stock exchange listing for the unit.

The sale means some bond investors will no longer hold a claim to the parent company’s assets and will have less bargaining power in debt restructuring negotiations. The company was purchased in 2008 in a $30.7 billion leveraged buyout led by Apollo Global Management LLC and TPG Capital.

“If successful, this would achieve a lot of the sponsors’ objectives with limited downside for them,” Chris Snow, a New York-based analyst at debt-research firm CreditSights Inc., said in a telephone interview. “It allows them to put forth a restructuring plan that is a lot more favorable to them.”

The company’s $2.09 billion of first-lien, 11.25 percent notes due 2017 fell as much as 4.5 cents on the dollar to 88.5 cents, a record low, and traded at 91.5 cents on the dollar as of 10:47 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry regulatory Authority.

Its $1.5 billion of 9 percent notes due in February 2020 slipped 1.75 cents to 80.25 cents on the dollar, also a new low, according to Trace.

Shares of Caesars, the largest owner of casinos in the U.S., rose 15 percent to $21.27 today, the biggest intraday jump since July. The stock had retreated 14 percent this year through yesterday. Caesars is scheduled to report first-quarter earnings today.

The company also announced that it was seeking a $1.75 billion first-lien loan to redeem all of the operating unit’s 2015 maturities and repay bank debt, according to the statement. It has commitments for about $1.7 billion of loans from investors and will seek additional funds this week, according to the statement.

The casino operator is also seeking an amendment to its credit facility that will modify certain covenants. Guarantee of the unit’s debt by Caesars Entertainment will be limited to the bank debt holders who consent to the amendment plus no more than about $2.9 billion of additional debt, according to a condition stipulated by the lenders in the new loan, according to the statement.

The move is the latest maneuver designed to shore up the company’s finances after the buyout and a decline in gambling revenue in large markets such as Atlantic City, New Jersey, and Tunica, Mississippi. Caesars has divested assets, sold shares to the public and raised an additional $500 million from Apollo and TPG.

Lawyers representing certain debt holders have sent letters to Caesars challenging the company’s transfer of assets. Some creditors may be wiped out in a restructuring, Moody’s Investors Service analyst Peggy Holloway wrote in a report May 5.

Bloomberg News

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